Sugar stocks in sweet spot, as shares hit roof

May 3, 2021
The Hindu BusinessLine |

Shares of sugar prices surged on Monday, as analysts expect the commodity price to go up following Brazil woes. According to reports, sugar output for April in Brazil was down 35 per cent year-on-year. Analysts said Brazi’s loss could be India’s gain.

A Reuters report quoting industry group Unica said: “Brazil's center-south sugar output was only 624,000 tonnes in the first half of April versus 971,000 tonnes in a similar period last year. Cane crush was seen at 15.6 million tonnes, 30 per cent less than in 2020.”

According to analysts, Indian sugar industry has contracted 55 lakh tonnes for exports and raw sugar is sold at a premium. India's sugar production has increased 41 lakh tonnes during the current October 2020-September 2021 season.

Shares of EID Parry and Balrampur Chini have hit 52-week high on Monday. Most of the sugar stocks have hit the upper circuit on Monday. While the former gained 16.74 per cent at ₹403.85, the latter surged 16.33 per cent at ₹323.80. Shares such as Bajaj Hindusthan Sugar, Dwarikesh Sugar, Dhampur Sugar Mills, Uttam Sugar Mills, Sakthi Sugars and Ponni Sugars (Erode) jumped 20 per cent while Shree Renuka Sugars climibed 10 per cent. Ravalgaon Sugar Farm, Dharini Sugars & Chemials and Thiru Arroran Sugars surged 5 per cent.

Tight demand-supply


The harvest season has commenced in Brazil and initial trends point to a lower crop yield this year, owing to less sowing and unfavorable Monsoon conditions. Sugarcane yield is likely to drop this season and its quality also is likely to go down, which could impact recovery rates in Brazil. “As a result, we expect Brazil’s millers to restrict sugar production this year. With some other key sugar-producing countries, such as Thailand, & EU, not expected to produce higher output, we believe the global demand-supply scenario to remain tight," Elara Securities said.

“We believe India’s sugar industry will achieve 6.0 mn tonne exports target set by the government at the start of the year on highly remunerative international prices,” added Elara Securities

‘Not a cyclical any more’


Another domestic broking firm JM Financial said that it believes India’s sugar sector has drifted away from cyclicality (in terms of sugar prices) as well as from partial deregulation (it is fully regulated now and is likely to remain so in the foreseeable future).

“This has been led by: structural oversupply in terms of sugar production (from swinging between 22-30 mt to 30 mt plus except in case of drought years in Maharashtra and Karnataka; the government’s efforts on the ethanol blending program; and the government’s objective to ensure sugarcane farmers are paid without significant arrears”.

This bodes well for the sugar sector (especially efficient companies) as government policies (sugarcane price/MSP/buffer stock/export subsidies/ethanol prices) would ensure survival of the weakest. Hence, well-managed sugar companies could generate enormous earnings/cash flows in the process, JM Financial added.